The Energy Regulatory Commission (ERC) on Monday denied the petition for provisional authority and/or interim relief filed by Manila Electric Co. (Meralco) and San Miguel Corp.’s power subsidiaries.
The move is expected to jack up the electricity rates of Meralco, which will have to tap the more expensive supply from the electricity spot market or from other power generators to fill up the 1,000 megawatts combined capacity under the two PSAs provided by San Miguel.
In separate orders, ERC denied the respective joint motions for price adjustments of Meralco and South Premiere Power Corp. (SPPC) and San Miguel Energy Corp. (SMEC) under its 2019 power supply agreements (PSAs).
SPPC and SMEC, administrators of the 1,200-megawatt Ilijan natural gas and 1,200-MW Sual coal-fired power plants respectively, along with Meralco, are seeking a temporary rate hike of P0.30 per kilowatt-hour over six months.
ERC said the grounds invoked by the applicants do not fall within the “change in circumstances” (CIC) definition as contemplated in the PSAs.
It said what is contemplated as CICs are changes in the law or amendments, modifications, repeals, or withdrawal of any law, interpretation of any law by a governmental instrumentality, at any time after the date of the PSA, which adversely affects the financial condition of the applicants.
“The Commission finds that the joint motion for price adjustment failed to state any change in law—whether occurring abruptly or over time — upon which the claim of CIC may be anchored as a basis for the price adjustment,” ERC said.
ERC said the claims of massive losses from fuel-related costs for the Sual plant due to the Indonesian coal export ban and the Ukraine-Russia war are “lacking in merit and reason.”
ERC said SMEC should have calculated its own risk assumptions and price forecasts and implemented risk-mitigating measures to ensure compliance with its long-term contractual obligations.
The regulator said it also conducted a technical evaluation of the scenarios presented by Meralco during the clarificatory hearing on the price impact of the PSA termination.
ERC said Meralco used an average price forecast of P8.9404 per kilowatt-hour if the power supply will be procured from the Wholesale Electricity Spot Market (WESM) in the event of the PSA termination.
The Commission arrived at a P7.6659 per kWh WESM price, lower than Meralco’s computation.
“What is clear is there is no basis for such relief under the PSA, for it is in the nature of a financial contract with a fixed price. Under such a contract, SMEC assumes all risks attendant to market conditions and economic realities,” ERC said.
The Commission said Meralco’s PSA with SPPC does not require the latter to supply power from the Ilijan natural gas plant exclusively.
ERC said the Malampaya gas restriction notices were issued, and “it was foreseeable for SPPC that there would be instances within the PSA term wherein gas supply from the Malampaya Gas Field could be restricted.”
Meanwhile, ERC said Meralco and SMC would need to observe 60 days following the receipt of the denial of the price adjustment before any contract termination can take effect.
SMC earlier announced it will terminate its contract with Meralco by October 4.
The decision was signed by the five-man commission led by ERC chairperson Monalisa Dimalanta, Catherine Macena, Floresinda Digal, Alexis Lumbatan, and Marko Romeo Fuentes.
Lumbatan and Fuentes issued dissenting opinions to the decision.
They said the application should have been approved since the CIC covers “Change in Law” that the applicants may seek interim relief from the Commission for price adjustment.
They said the rate impact simulations presented and submitted in evidence by Meralco are indicative that the denial of the CIC claims would even expose the consuming public to unknown and even higher rates than granting the same, both in the short-term and in the long-term (until 2029).
“And we, in the Commission, should not allow such eventuality. The dissenting minority recognizes that all these data and information made available to the Commission are all indicative based on the view of industry experts, less than conclusive but definitely better than taking it on chances,” they said.